Payment system to be reviewed annually

THE RESERVE BANK OF INDIA ANNUAL REPORT 2006-07

The Reserve Bank of India (RBI) will conduct an annual review of the payment and settlement systems to ensure that customers receive timely, cheap and dependable service.

The first review is proposed for the year-ended March 31, 2007. The review would be based on parameters like timeliness of customer service, cost of operation, service charges and the overall impact on the financial system.

The central bank's Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) gives directions and sets standards for payment and settlement systems.

The board is studying payment systems in select countries to draw relevant lessons for India. Also on the board's agenda are preparation of a roadmap for moving from paper-based products to electronic payment systems and promoting card-based payments as one of the strategies for increasing the use of electronic payments.

The retail payment systems are dominated by the conventional cheque payment systems. The board has recommended exploring the feasibility of setting up a low cost cross-border remittance system with neighbouring countries, especially Nepal, and also proposed an assessment of the real time gross settlement (RTGS) system and bringing all RTGS-enabled branches under the national electronic funds transfer (NEFT) system.

The suggestions include looking at the feasibility of a couple of large banks providing associate memberships to smaller banks to participate in the cheque truncation system.

A RBI study group had submitted its report on migration from paper-based funds movement to electronic funds transfer in April 2007.

While, the RBI had rejected the panel's suggestion to levy a charge on cheques, the other recommendations for incentivising electronic payment systems are being considered by the RBI.

The RBI, in its annual report for 2006-07, said that its focus in the coming years would be to consolidate the existing payment systems, while promoting electronic means of payment and settlement.

The central bank said it would pursue efforts to create infrastructure for remittance facility between some of the neighbouring countries.

The annual turnover, in value terms, in the various payment and settlement systems rose 37.5 per cent to Rs 4,23,74,063 crore in 2006-07 from Rs 3,08,15,285 crore a year earlier.

Around 80 per cent of the turnover was in the systemically important payments systems (SIPS), which includes, inter-bank clearing, high value clearing, government securities and foreign exchange clearing and RTGS.

RTGS was the largest segment, over half, in value terms, registering a 60 per cent growth during 2006-07 mainly due to the movement of large-value time critical payments to this system and the widening of the RTGS network to cover more bank branches.

The turnover (in value terms) of the various retail payment systems including cheque clearing, electronic clearing service and the card based payment system grew 11.8 per cent in 2006-07 to Rs 72,57,786 crore.

There was an increase in turnover in absolute terms in all retail payments except for cheque clearing through non-magnetic ink character recognition (MICR) cheque processing centres (CPCs).